The average 30-year fixed rate mortgage in the US rose to 7.31% last week, up 15bps from the prior week and the highest since December of 2000.
That’s according to MBA data released on Wednesday. Rates are up four weeks in a row and more than 40bps in August alone.
Financing costs reclaimed a seven-handle this month on the back of a worsening selloff at the long-end of the US Treasury curve. “Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high,” MBA VP Joel Kan said.
Existing home sales figures released on Tuesday suggested the persistence of relatively high rates is still contributing to the acute shortage of resale properties herding Americans into new construction and bolstering prices, which remain at or near records in many parts of the country.
As I wrote earlier this week, we shouldn’t lose track of the fact that people’s expectations are conditioned on what they know. Telling newlywed thirtysomethings that 7% actually isn’t high from a historical perspective is pointless. 7% may seem reasonable to some of us, but if you’re just now 30 years old, you were seven when mortgage rates were last this high.
Wednesday’s MBA data also showed purchases fell 5% after a 0.3% drop the prior week.
The index now sits at the lowest levels since April of 1995. To drive home the point above about expectations being colored by experience, 1995 might as well be 1920 for many of 2023’s would-be homebuyers. They were barely born.
Notably, the share of applications for adjustable rate mortgages was 7.6%, a five-month high. Demand for ARMs rose 4% from the prior week.
“Some homebuyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period,” Kan remarked.
Last November I was talking to my Uber driver in DC about housing prices and rates. She explained to me that her “realtor friend” said it was a good time to buy because prices were down and you could always refi when rates dropped. I explained that rates were not likely to drop any time soon because inflation wasn’t really budging. This irritated her because of her belief that realtor friend knew more than I do. My takeaway was realtors are no better than insurance sales people. They will spin whatever yarns get people buying regardless of financial risks to their “friends”.